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Co-operatives are legal entities owned and run by, and for, their members. There are over 9,000 co-operatives in Canada, with over 18 million members. Most of them operate businesses. Not all of them are business enterprises – many co-operatives are not-for-profits and some are registered charities.
A co-operative is one of the oldest forms of social enterprise – it exists to serve its members, who may be workers, producers, consumers or residents. Members have an equal say in what the business does and a share in the profits.
Each province and territory has its own legislation governing co-operatives. Those laws vary in detail, but the general principles are the same. Co-operatives adhere to a set of seven principles adopted by the International Co-operative Alliance in 1995. They are:
- Voluntary and open membership, available to a wide range of people without discrimination.
- Democratic member control: each member has one vote regardless of how many shares they own in the co-op.
- Member economic participation: members all contribute resources to the co-operative, and in a business co-operative profits are returned to members according to the amount of business they do with the co-op. Such payments are called patronage returns.
- Autonomy and independence: co-operatives are intended to operate as mutual self-help organisations and they get their resources from their members as much as possible.
- Education, training and information: co-ops provide education and training to their members, directors and employees.
- Co-operation among co-operatives: co-operatives work together and, where possible, do business with other co-operatives.
- Concern for community: co-operatives should work for the sustainable development of their communities through policies approved by their members.
Most co-operative legislation permits co-operatives to be created for business purposes or for purposes other than profit. In many respects, a not-for-profit co-operative is like a society or corporation without share capital, but there are differences that make the co-operative model preferable for some situations. The details of those differences will vary from province to province but are commonly found in such areas as member rights, board composition and dispute resolution.
One common type of not-for-profit co-operative is a housing co-operative, established to provide affordable or subsidized accommodation to its members. Housing co-operatives supply a lot of Canada’s rental housing, with over 97,000 units housing over 250,000 people. Other not-for-profit co-operatives provide childcare, health care or other social services to members.
In British Columbia, the Cooperative Association Act (“CAA”) establishes a type of co-operative called a Community Service Co-operative (“CSC”), which must operate on a non-profit basis for charitable purposes (not defined in the CAA) or provide health, social, educational or other community services. On dissolution, it must distribute its assets to another CSC or to a charitable organization registered under the Income Tax Act (Canada). The co-operative legislation in Saskatchewan has similar provisions. The federal Canada Cooperatives Act has special provisions for not-for-profit housing cooperatives and permits incorporation of other not-for-profit cooperatives. In Ontario, the Cooperative Corporations Act contains special provisions for not-for-profit housing co-operatives and permits other co-operatives to be incorporated without share capital (like traditional not-for-profit corporations). A co-operative without share capital will typically raise funds from its members through member loans or membership fees.
In Quebec, an Association Cooperative d’economie Familiale (ACEF) is a type of not-for-profit co-operative. They provide families with counselling services on budgeting and financial matters. ACEFs also do anti-poverty work in areas such as health care, consumer protection, taxation and access to public services.
There are over 300 charitable co-operatives in Canada, in all provinces and territories. To become a registered charity, a co-operative must apply, like other organizations, for registration to the Charities Directorate of the Canada Revenue Agency (“CRA”). To qualify for registration as a charity, the co-operative must have exclusively charitable purposes and it must not pay dividends to its members. In considering whether a co-operative has exclusively charitable purposes, CRA will look to the common law to determine whether the purposes of the co-operative are charitable (as it does for all other applicants).
The biggest category of charitable co-operatives is in early childhood education, operating preschools, nursery schools or daycares. Others operate skating rinks, community halls or playgrounds; while others have purposes that include operating seniors’ centres, providing education, delivering health services, advancing culture and the arts, preserving historic and natural sites, advancing international co-operation and operating an ambulance service. There are some unique charitable co-ops, such as a volunteer fire and rescue service and one that provides job training and laundry services to low income people.
Miller Thomson lawyers have experience helping clients incorporate co-operatives of all kinds, including charitable and not-for-profit cooperatives. If you are considering the co-operative model for your charity, not-for-profit, or social enterprise, contact the Miller Thomson Social Impact group.